Venezuelan
President Hugo Chavez has accused the United States of causing the devastating
7.0 magnitude earthquake in Haiti, which killed possibly 200,000 people. Chavez
believes the U.S. was testing a tectonic weapon to produce eco-type
devastations.Andrew Moran, "Hugo Chavez
Accuses U.S. Of Using Weapon To Cause Haiti Quake," Digital Journal, January 22,
2010 ---
http://www.digitaljournal.com/article/286145
Jensen Comment
If it were true, why pick on hapless Haiti? A better target might be offshore
Venezuela. But rumors have it that Charlie Sheen will take these accusations to
the world.

When we see what
we did at the climate summit in Copenhagen, this is the response, this is what
happens, you know what I’m sayin’?Super Scientist Danny Glover explaining what really caused
the 7.0 earthquake near Haiti

Every day thousands of Americans vote with their
feet on the best places to live and work, and these migration patterns can
tell a lot about state economies—and economic policies. United Van Lines has
released its annual report for 2009, based on those the moving company has
relocated across one state line to another, and the winner is . . .

But first the biggest loser, which was Michigan for
the fourth year in a row. More than two families left the state for every
family that moved in. The fall of GM and Chrysler has obviously hurt. But
two-term Governor Jennifer Granholm has also made her state the test case
for the policy mix of raising taxes on higher incomes, increasing
regulation, and steering taxpayer money at favored programs like job
retraining and renewable energy. It hasn't worked for Michigan, even with
the auto bailouts.

Ms. Granholm continues to be a regular economic
policy adviser to the White House. Yikes.

The next two biggest net losers were Illinois and
New Jersey, while California and New York also continued to have far more
departures than arrivals.

Ten states gained net arrivals: Oregon, Arkansas,
Nevada, Wyoming, Idaho, Colorado, Georgia, New Mexico, Texas and North
Carolina. Of those, only Oregon sways decidedly to the political left and it
has benefited from the economic refugees fleeing California.

Six of the eight states with no income tax were
magnets for families, while eight of the 10 highest income tax states had
more people packing. Democrats in state capitals and Washington have
convinced themselves that "soak the rich" tax policies can help balance
budgets, but the main effect seems to be to stimulate bon voyage parties.

As for the biggest winner, well, our readers won't
be surprised to learn that it was Washington, D.C. by a large margin. United
Van Lines moved nearly seven families to the federal city last year for
every three it moved out. As always when the feds gear up the income
redistribution machine, the imperial city and its denizens get a big cut of
the action.

As in ancient Rome, the provinces are being
required to send tribute to subsidize those living in the capital, which
produces few services save transfer payments. No wonder the provincials are
starting to rebel—even in Massachusetts.

The United States is losing ground to its major
competitors in the global marketplace, according to the 2010 Index of
Economic Freedom released today by the Heritage Foundation and The Wall
Street Journal. This year, of the world's 20 largest economies, the U.S.
suffered the largest drop in overall economic freedom. Its score declined to
78 from 80.7 on the 0 to 100 Index scale.

The U.S. lost ground on many fronts. Scores
declined in seven of the 10 categories of economic freedom. Losses were
particularly significant in the areas of financial and monetary freedom and
property rights. Driving it all were the federal government's
interventionist responses to the financial and economic crises of the last
two years, which have included politically influenced regulatory changes,
protectionist trade restrictions, massive stimulus spending and bailouts of
financial and automotive firms deemed "too big to fail." These policies have
resulted in job losses, discouraged entrepreneurship, and saddled America
with unprecedented government deficits.

In the world-wide rankings of economic freedom, the
U.S. fell to eighth from sixth place. Canada now ranks higher and boasts
North America's freest economy. More worrisome, for the first time in the
Index's 16-year history, the U.S. has fallen out of the elite group of
countries identified as "economically free" by the objective measures of the
Index. Four Asia-Pacific economies now sit atop the global rankings. Hong
Kong stands in first place for the 16th consecutive year, followed by
Singapore, Australia and New Zealand. Every region of the world maintains at
least one country among those deemed "free" or "mostly free" by the Index.

Some countries, notably Britain and China, have
followed America's poor example and curtailed economic freedom. But many
others—such as Poland, South Korea, Mexico, Japan, Germany and even
France—have maintained or expanded economic freedom despite the global
crisis. Ignoring the pressures of recession, these enlightened nations have
continued to liberalize their economies, granting their entrepreneurs and
consumers greater freedom. As a result, the average Index score dropped only
0.1 point in 2010. Eighty-one countries out of the 179 ranked recorded
higher scores than in 2009.

These trends are important because study after
study shows a strong correlation between economic freedom and prosperity.
Citizens of economically freer countries enjoy much higher per-capita
incomes on average than those who live in less free economies. Economic
freedom also has positive impacts on overall quality of life, political and
social conditions, and even on protection of the environment. Perhaps of
most significance in these hard times, Index data indicate that freer
economies do a much better job of reducing poverty than more highly

The public sector can't match the vitality of the
private sector in promoting growth. Governments, even those that promise
change, are primarily agents of the status quo. They tend to reflect the
views and needs of those already holding political or economic power. Even
democratic nations have their vested interests. Real change, however, can
happen when those outside the mainstream have the freedom to try new things:
new production processes, new technologies and new methods of organizing
workers and capital.

It is common these days to dismiss as simpletons or
ideologues those who speak in favor of the free market or capitalism. An
honest assessment shows otherwise. Economic freedom, as represented in the
Index of Economic Freedom, is a philosophy that rejects economic dogma,
championing instead the diversity that follows when entrepreneurs are free
to choose their own paths to prosperity.

The abiding lesson of the last few years is that
the battle for liberty requires perpetual vigilance. President Obama
professes desire to foster prosperity, environmental protection, poverty
reduction and better health care. How ironic, then, that his economic
proposals so consistently ignore or even undermine the one system—free
enterprise capitalism—that has proven best able to achieve those goals.

Now America's once high-flying economy is barely
crawling forward. Americans deserve better, and they can do better—as soon
as they reverse course and start regaining the economic freedom that made
America the most prosperous country in the world.

Mr. Miller is director of the Center for International Trade and
Economics at the Heritage Foundation. He is co-editor, with Kim R. Holmes,
of the "2010 Index of Economic Freedom" (471 pages, $24.95), available at
heritage.org/index.

"I read that 3,000 soldiers are arriving, Marines armed as if they were going to
war. There is not a shortage of guns there, my God. Doctors, medicine, fuel,
field hospitals, that's what the United States should send," Chavez said on his
weekly television show. "They are occupying Haiti undercover."
Reuters, "Chavez says U.S. occupying Haiti in name of aid," January 17, 2010 ---
http://www.reuters.com/article/idUSTRE60G2DW20100117?feedType=RSS&feedName=worldNews&rpc=22&sp=true
Yeah Right
At last the U.S. has an opportunity to take over Haiti and make it the 51st
state, Why not send the Venezuelan army in to keep the peace?

Yemen Releases Six Former Gitmo Despite
Promises to Obama Its not a surprise the six detainees
transferred from Gitmo to Yemen
were released within a week of their return to Yemen, and its no surprise that
the Saleh government in Yemen lied to the US with its pledge of continued
detention. What's shocking is that anyone on the US side actually believed them
to start with. The Heritage Foundation has some advice on Terrorist Transfers
from Gitmo to Yemen: Strictly monitor for at least a year the six Guantanamo
Yemenis just transferred to Yemen. According to news reports, the Yemeni
government has agreed to detain them indefinitely.The Jawa Report, January 6, 2010 ---
http://mypetjawa.mu.nu/archives/200302.php

The Pentagon says
more of the terror suspects released from the Guantanamo Bay prison are
returning to the fight. Defense Department press secretary Geoff Morrell says a
new report shows the recidivism rate among former suspects released from the
prison in Cuba continues its upward trend. He did not release the figures, but
said officials are working to declassify the latest report so the rate can be
made public.
Associated Press ---
http://www.breitbart.com/article.php?id=D9D2EE100&show_article=1

Until recently, the United States had become
complacent about terrorism. The general view was that al Qaeda was on the
run and Islamic terrorism was a receding threat. We now know better.

A string of attacks by Islamic terrorists—an
officer murdering his fellow soldiers at a U.S. army base, a passenger's
attempted bombing on a Detroit-bound airplane, and a double agent's suicide
bombing a CIA base in Afghanistan—reveals the continuing and growing danger
of Islamic terrorism. Hostility to the U.S. appears to be increasing among
Muslim populations, and, with it, the number of potential terrorists. It is
alarming that none of the three attackers—an American, a Nigerian and a
Jordanian—was from one of the traditional hotbeds of terrorism.

In the case of the first two attacks, information
that should have alerted the security services to the danger of an attack
was in their hands but was not acted on. And this despite the restructuring
of the national intelligence system after the 9/11 attacks. These failures
are only the latest evidence that the post-9/11 reforms have not been a
success.

Real reform of complex institutions is always hard,
but it is possible. Consider a storied, historic, indeed iconic American
institution that had developed an internal structure so convoluted that
information did not flow through it—fiefdoms abounded, and duplication and
delays were the rule. After many failed efforts at reform, only the threat
and actuality of bankruptcy forced this institution to slim down, streamline
and focus.

We are referring, of course, to the U.S. auto
industry. The domestic automakers' organizational structures were
notoriously complex and top-heavy. While Toyota had been selling the same
car worldwide, Ford had insisted that American consumers would not buy the
cars successfully produced by Ford for sale in Europe. As a result, every
stage of production from R&D to actual manufacturing was duplicated in the
two markets.

When General Motors dealers in Florida tried to
stop GM from promoting its SUVs in the state's 70-degree Christmas season
with ads bragging about the vehicles' performance in snow, they found no way
to get their message across. GM had 325,000 employees, yet was run as a
matrix with overlapping functional and geographic management structures. As
Rick Wagoner, its ousted CEO, had confessed: "People really have trouble
because they want to know who's in charge," he said, "and the answer is
going to be, increasingly: It depends."

The national intelligence apparatus of the U.S. has
fewer employees than GM had in its prime, yet it consists officially of 16
separate agencies, and unofficially of more than 20. Each of these agencies
is protected by strong political and bureaucratic constituencies, so that
after each intelligence failure everything continues pretty much the same
and usually with the same people in charge.

Five and a half years after the report of the 9/11
Commission identified the cascade of intelligence failures that allowed the
9/11 attackers to achieve total surprise, the problems it highlighted
persist: We learn of multiple, separate and unshared terrorist lists; of
multiple agencies (State Department, CIA and the National Counterterrorism
Center) unable to combine the tips they receive; of arbitrary rules, such as
requiring proof of "reasonable suspicion," rather than mere suspicion, to
deny a visa to a foreigner; and of terrorists released from American custody
to become leaders of al Qaeda abroad. There is the sense that nobody is in
charge.

The government's response to the attempted airline
bombing—the most recent failure—has been to blame every agency that had some
information that if pooled would have alerted the airport authorities to the
menace of Abdulmutallab. To blame all is to blame none.

We have an unwieldy multiplicity of agencies that
operate largely independently. Dysfunctional bureaucratic incentives decree
that an attack involving a repetition of a known terrorist procedure is the
most damaging politically, so shoes are scanned because a shoe was used in
an attempted airplane bombing. Now underwear will be scanned as well. The
government seems always to be playing catch-up to the terrorists.

We can fix this. As with the auto industry, the
moment of crisis is the right moment to tackle in-depth reform of the
intelligence services. One possibility that deserves serious consideration
would be a consolidation of most existing agencies into four primary
agencies: a foreign intelligence agency, a military intelligence agency, a
domestic intelligence agency, and a technical data collection agency
(satellite mapping, electronic interception, etc.).

This structure would mimic the United Kingdom's MI6
(the Secret Intelligence Service), Defence Intelligence Agency, MI5 (the
Security Service), and GCHQ (General Communications Headquarters). In a
streamlined system, the Director of National Intelligence would be a
coordinator, rather than combining the role of a coordinator with that of
the president's senior substantive intelligence officer. (As if the CEO of
Boeing also designed the companies planes).

The members of our intelligence community will
protest that simplifying the structure of the intelligence community is
impossible—echoing the protests of auto workers, until bankruptcy forced
their hand. The national intelligence system is similarly bankrupt: More
than eight years after the 9/11 attacks, there is no excuse for such
egregious failures. The time to act is now.

Mr. Garicano is a professor of management and economics at the London
School of Economics. Mr. Posner, a federal circuit judge and a senior
lecturer at the University of Chicago Law School, is the author of "A
Failure of Capitalism: The Crisis of '08 and the Descent Into Depression"
(Harvard, 2009).

When we see what
we did at the climate summit in Copenhagen, this is the response, this is what
happens, you know what I’m sayin’?Super Scientist Danny Glover explaining what really caused
the 7.0 earthquake near Haiti

I got the surreal news (via text message) about the
Haitian disaster on an Amtrak train from Washington, D.C. to Philadelphia
Tuesday evening (after attending the AAA symposium on race that I blogged
about on Monday). And it just so happens that I was reading, in an almost
eerie kind of irony, a small new book by Susan Buck-Morss during that train
ride, Hegel, Haiti, and Universal History.

The book is an extrapolation on her Critical
Inquiry article (from 2000) where she tried to argue that Hegel got his
master-slave metaphor from the Haitian revolution, and that such a seemingly
clear and self-evident historical fact has been sorely under-appreciated (in
fact, missed just about entirely) by the best and brightest philosophers and
historians who have worked on Hegel. She chalks these omissions up to a
series of factors, including the narrowcast biases of disciplinization and
academic specialization. Buck-Morss maintains that the early Hegel was
clearly influenced and inspired by the Haitian revolt (championing the
psychic need for slaves to forcibly reclaim their full humanity by asserting
it in the face of brutal reprisals), even if the later Hegel (of The
Philosophy of History) ends up dismissing all of Africa as radically
ahistorical, uncivilized, and unprepared for full sovereignty.

In many ways, Robertson's pseudo-religious reading
of the Haitian tragedy is a sensationalized version of the very logics that
Buck-Morss critiques.

I call it "pseudo-religious" because I think of
Robertson's comments as self-serving political claims hiding behind the
cloak of religiosity. Of course, religion is inescapably political, but
Robertson's own religious texts don't provide evidence for such wildly
specific and offensive claims of Satanic collusion. On what evidence, from
what sacred book, does Robertson base his theory of Haitian history (or any
of his past pronouncements, including the "argument" that 9/11 was divine
retribution for America's legalization of abortion)? Is he merely performing
a xenophobic reading of Voodoo's spiritual difference from his particular
version of Christianity?

Instead of seeing 18th- and 19th-century Haitian
freedom fighters as subjects of history, agents capable of throwing off the
shackles of foreign oppression (in a manner similar to America's
18th-century revolutionists, a group that I've never heard him call lapdogs
of Satan), Robertson removes them from the political and geopolitical
playing field altogether, dismissing their post-revolutionary plight as
comeuppance for a bad deal with the devil. About that theory, two last
things:

First, I would recommend that Robertson read
Randall Robinson's An Unbroken Agony: Haiti, from Revolution to the
Kidnapping of a President, which shows, quite compellingly, that Haiti's
current politico-economic predicament is a direct result of how Europe and
the United States responded to the country's 1804 assertion of autonomy: by
very purposefully isolating and exploiting Haiti (politically and
economically) for the next two hundred years. Therein lies much of the
answer, Robinson demonstrates, to Haiti's current woes. (The details he
provides, mostly uncontested and unhidden facts of history, will be shocking
to many readers).

Second, if the Satan theory is accurate, I would
ask that Robertson finally let them out of their contract with him. As a
function of the kinds of horrible and inhumane ideas he spews, Robertson
must be the other contractual party of which he would explain how he knows
so much about such a secret compact/

Of course, the public is right. In the midst of the
worst economic crisis in seventy years, why waste enormous political capital
battling to pass a healthcare plan that is modeled on a proven failure in
Massachusetts, as voters there clearly registered? Meanwhile, the president
has dropped the ball in the effort to make bankers act responsibly by
forcing them to forego outrageous bonuses and help homeowners stay in their
homes. Again quoting the message of that Wall Street Journal/NBC poll: "The
president's focus on health care amid heightened job concerns could be
hurting his ratings. At the one-year mark of his presidency, 35 percent of
Americans said they were 'quite or extremely' confident he had the right
priorities to improve the economy, down from 46 percent at midyear." The
Journal noted that a majority disapproved of the government's response to
the financial crisis, adding, "The related problem for Mr. Obama is the
public's lingering anger about the bailouts of 2008 and 2009, which helped
boost bank profits even as unemployment grew--a toxic political problem."

But I never watched MSNBC for an extended period
until Tuesday night, during the coverage of the Massachusetts Senate special
election. I was genuinely curious how they would cover a breaking news story
with the potential to run afoul of their most popular hosts’ belief systems.

I wish my curiosity hadn’t gotten the better of me.

The channel assembled Chris Matthews and Rachel
Maddow, two unabashed liberals and Barack Obama supporters, to comment on
the breaking news. And who was anchoring this portion of the programming?
Keith Olbermann, someone whose tone appears far more intense than his peers.
(I’m trying to be gentle.)

Three hardcore liberals assigned to report on a
major senatorial race, each looking as if someone was torturing their dog
off camera. Norah O’Donnell looked equally pained, and she was stationed at
Brown’s camp. Typically, when a newscaster is situated in the winner’s
circle, the jubilation can be infectious. She was immune.

Fair and balanced? Doom and gloom is more like it.
Where was the jovial Matthews, the feisty political observer, during one of
the biggest nights in recent electoral memory? This is meaty stuff, an
historic night with plenty to chew on, but Matthews looked as if he had
eaten something that disagreed with him. It’s safe to assume he didn’t get a
tingle all night

. . .

To cap off the night, Olbermann doubled down on his
insulting, ill-informed rant from the night before about Scott Brown. I
won’t repeat what he said here, but it’s
on the webfor all to see.

Before MSNBC took a hard turn left, media critics
routinely bashed Fox News for its lack of objectivity. And they have a
point. The show’s signature talkers lean right, even though O’Reilly’s
program doesn’t veer right nearly as often as many think. O’Reilly strains
at times to give Obama the benefit of the doubt. And though O’Reilly
occasionally loses it on screen, barking at a guest or out-shouting someone
in rough fashion, he’s never unleashed a torrent of abuse like Olbermann did
for Brown.

Since MSNBC tacked left, Fox News bashing doesn’t
appear as often. If it does, critics tend to lump the networks together and
bemoan “opinion” journalism, wailing that CNN can’t compete with either
MSNBC or Fox News. No mention is ever made of how CNN tacks left as well,
often referring to roughly half of its potential viewers as “teabaggers.”

I’m not a hard news reporter — I cover
entertainment and features for a variety of outlets — but I felt embarrassed
for the folks at MSNBC all the same. Though it’s unlikely shame is an
emotion they spend much time wrestling with.

The December jobs report has doused the hope that
we were at the beginning of a sustained economic recovery.

The unemployment rate managed to hold at 10% in
December only because of an extraordinary shrinkage in the labor force: Some
661,000 gave up looking for a job.

Bureau of Labor Statistics' (BLS) nonfarm payroll
data indicate that December job losses totaled 85,000. But the bureau's
household survey, a better and more comprehensive measure of both the
unemployed and underemployed, indicated a loss of 589,000 jobs. Since the
Great Recession began in 2007, some 8.6 million jobs have been lost,
according to the bureau; and small businesses, the normal source for new
jobs, are still shedding workers. Fewer than 10% added employees, while more
than 20% cut back—and the cuts averaged nearly twice as many per firm as the
hires at the expanding companies.

Unemployment, in short, has graduated from being a
difficulty, a worry. It is now a catastrophe, with some 15.3 million
Americans out of work, according to the BLS.

What about the future? The problem in the job
market going forward is not so much layoffs in the private sector, which are
abating, but a lack of hiring. The federal stimulus program is offset by a
2010 budget shortfall for state, city, county and school districts, which
the Center on Budget and Policy Priorities recently estimated will be in the
range of an astonishing $200 billion nationally. Since virtually all states
and cities have to run balanced budgets, the result will be reduced
services, layoffs and tax hikes.

The consequence is that the U.S. economy—for
decades the greatest job creation machine in the world—is taking longer and
longer to replace the jobs already lost. In the 1970s and 1980s, Jane
Sasseen noted in a recent report in BusinessWeek, it took as little as one
year from the end of a recession to add back the lost jobs. After the
eight-month downturn ending in March of 1991, for example, jobs came back in
23 months. After the downturn from the dot-com bust in 2001, it took 31
months. This time it could take as many as five years or even more to
recover all of the eight-plus million jobs lost since March 2007. That's
because we would have to create an additional 1.7 million jobs annually
beyond those for the 1.3 million new people who enter the work force every
year.

Economists may see the recession as being over, but
the man on the street does not. Roughly 60% of the public believes the
recession still has a way to go, a NBC/Wall Street Journal poll reported
last October. Even those who have not suffered know someone—a friend, a
neighbor, a family member—who is being hurt. Two in three say the rally in
the stock market has not changed their views.

There are sound reasons for this gloom. Consumers
have learned a bitter lesson. They understand that increased
consumption—private and public—will have to come from income and not
borrowing, and income will have to come from employment.

Today, mainstream Americans are going on a
financial diet amid deteriorating family finances. They know now that they
cannot spend what they don't have, as the painful consequences of spending
levels that were artificially pumped up by too much debt have hit home. The
top 20% of the nation's households account for 40% of all spending,
according to government data reported by Ylan Q. Mui in the Washington Post
last September. But these households no longer trust their home equity or
rising stock portfolios (up by almost $5 trillion this past year) as a basis
for spending in lieu of saving. All they see ahead are taxes, taxes, taxes.
So the dollars have not yet started to flow. This is the new normal.

What this means is that larger-than-typical head
winds face two of the three normal engines of recovery: consumption and
residential investment. Rather than pumping more cash into a fragile economy
to make up this difference, the government will have to focus on its next
big task: drawing up credible plans for bringing bloated budget deficits
under control without triggering another downturn.

The prospect, therefore, is sluggish GDP growth;
employment gains that are too slow to prevent further increases in the
unemployment rate; and firms still very reluctant to hire vigorously.

How can we accelerate a substantial recovery in job
growth that will generate additional labor income? There is no snap answer.
But this is no argument for inertia.

We must have programs that create some degree of
confidence that America can be rebuilt, and jobs can be created, especially
since consumer spending will likely decline as a part of GDP for many years.
The unemployed have to be supported. But it would be better if the financial
support employed labor in rational, long-term, major infrastructure
projects, processed by a newly created National Infrastructure Bank.

These wouldn't be entitlement programs, but
regeneration programs. Government spending on infrastructure
projects—broadband Internet access across the nation, restoring decaying
bridges and canals, building high-speed railways, modern airports, sewage
plants, ports—has a high multiplier effect for adding jobs to the economy.
And we will be fulfilling a desperate national need.

A second avenue for increasing employment would be
to enhance technology, the area of our greatest strength. We are depriving
ourselves of productive talent by a fearful attitude toward immigration. We
make it hard for bright people to come and we make it hard for them to stay,
so once they have graduated from our universities they go home to work for
our competitors. This is not the way to run a railroad.

Foreign students are a significant proportion of
those with graduate degrees in the hard sciences in American universities.
We should restore the quotas for H-1B visas to 195,000 annually (where it
was in the early 2000s) from 65,000, where it is now.

This increase has been blocked by shortsighted
special-interest groups that fear jobs will be taken from Americans. On the
contrary. The kind of people we should be striving to keep are those whose
work in technology and engineering provides more than their share of new
jobs.

Technology and innovation have long given us our
greatest job growth. Just think: In 1800, about three-quarters of the U.S.
labor force was devoted to agriculture. Today, it is less than 3%.
Manufacturing employed one-third of the work force at the end of World War
II. Today, it is down to about one-tenth. Americans are accustomed to
economic transformation.

We must follow rational economic policies in the
interest of the nation and not in the interest of narrow parochial groups
who lobby legislators. Otherwise, as illustrated by the sorry journey of
health-care legislation, we will see more of the politics of corruption.

Mr. Zuckerman is chairman and editor in chief of U.S. News & World
Report.

President Obama and Democrats have settled on
demonizing Wall Street as a campaign theme for November's elections. If
history is any guide, Mr. Obama and New York Senator Chuck Schumer will now
persuade Wall Street to underwrite this campaign. Ah, the politics of hope
and change. How refreshing.

Phony populism aside, yesterday Mr. Obama
introduced his first serious idea into the debate on reforming the financial
system. In calling for an end to proprietary trading at firms with a federal
safety net, the President showed that he now understands an important
principle: Risk-taking in the capital markets is incompatible with a
taxpayer guarantee.

Under the President's still-sketchy plan, firms
that hold government-insured deposits or are eligible to receive cheap loans
in an emergency from the Federal Reserve would not be able to trade for
their own accounts. The firms could facilitate customer orders as brokers
have always done and continue to underwrite new issues of stocks and bonds,
but they could not make bets with their own capital or own or invest in
hedge funds.

Yesterday's announcement is a critical departure
from the reform plan Mr. Obama introduced last year—largely incorporated in
the House and Senate bills written by Barney Frank and Chris Dodd. Those
plans all sought to expand the universe of too-big-to-fail companies
eligible for taxpayer rescue. Mr. Obama has at last joined the most
important policy discussion: How to eliminate the moral hazard now embedded
in the U.S. financial system. Political assaults on banker compensation have
done nothing to address this core problem that enables gargantuan bonuses.

The days ahead will demonstrate whether Mr. Obama
is serious, or if this is merely a political tactic to encourage Republicans
to defend big banks. If he's serious, he will add to his plan a taxpayer
exit strategy from the most expensive bailouts—at Fannie Mae and Freddie
Mac.

He'll also soon realize that while his plan raises
the right questions, its details will be crucial. Since there's a
counterparty on the other end of every trade made by Goldman Sachs, it won't
always be easy to discern trades made for customers versus those made for
Goldman.

More fundamentally, even if the logistics can be
mastered, the President's plan would not have prevented the credit chaos of
2008. Bear Stearns was not a bank, could not borrow from the Fed's discount
window and wasn't even all that big, yet the government still wouldn't let
it fail. Under Mr. Obama's new rules, Goldman might simply decide to sell
its bank—yet investors and its own traders would still assume it is too big
to fail. That problem still needs to be addressed.

Mr. Obama also keeps peddling the illusion that the
entire crisis was caused by the bankers. But the root cause was a credit
mania, courtesy of the Federal Reserve. The mania was concentrated in the
housing market, courtesy of Congress and several Presidential
Administrations.

If we are going to have a Fed and a political class
as reckless as we have, then we need a more comprehensive answer to
financial risk. Bankruptcy for risk-takers who bet wrong is the best option.
Barring that, strict limits on margin and leverage, especially for holders
of insured deposits, can be helpful. Mr. Obama's suggestion yesterday of
limits on the size of financial firms—with the limits still to be
determined—deserves a hearing but would seem more problematic.

Still, we're encouraged by yesterday's
announcement. The Democrats appear to finally realize that too-big-to-fail
is a problem to be solved, not the foundation of a modern banking system.

Midway between the first intoxications of borrowed
money that does not exist, and the red-hot bearings of presses that roll to
correct such inconsistencies, lies a wonderland in which human nature can
become a subsidiary of the making and spending of money. Not steadily and
honorably in furtherance of well being, charity, and art, but at the speed
of summer lightning and for its own sake.

When pay-out exceeds pay-in, balance is maintained
only by the weight of illusion—as in real-estate bubbles, or welfare states
in which benefits vastly exceed contributions. Within such failing systems
one finds nevertheless highly visible concentrations of wealth, like lumps
in tapioca, that persist in setting a tone that has long gone flat.

Take Manhattan, but first take the Hamptons, where
symptoms are readily apprehended, just as the pulse at the wrist is a
telltale of the heart. Mere multimillionaires cannot afford anymore to go
where within living memory actual people made a living from the farms, clam
beds, and sword-fishing grounds. Now the potato fields are covered with
houses that look like the headquarters of Martian expeditionary forces,
ice-cream factories, vacuum cleaners on stilts, the Seagram building on its
side, or shingled New England cottages monstrously swollen into something
you might see after eating a magic mushroom. In simple and quiet towns that
once deferred to the majesty of the ocean, the streets are now clogged with
a kabuki theater of Range Rovers and $35,000 handbags.

In Manhattan the knock-the-wind-out-of-you rich
used to be a relatively silent freak of nature who could easily be ignored,
but of late they are so electrically omnipresent, jumping out of every flat
screen and magazine, that they indelibly color the life of the city. Having
multiplied like Gucci-clad yeast, they have become objects of impossible
envy.

You cannot ignore them as you sit in your $2,000 a
month 7 x 10 "efficiency," eating your $5 street pretzel. Or when private
schools—where scholarships are reserved for peasants who subsist on $300,000
or less, and where if you haven't been admitted by the time you're an embryo
you're toast—have become like the class redoubts of Czarist Russia.

Or when Mayor Michael Bloomberg spends a hundred
million of his own money, $175 per vote, to crown himself like Napoleon,
perhaps forgoing the purchase of the presidency because at that rate he
would have to fork over $22 billion. What if he had spent comparably to his
predecessors—Fiorello La Guardia, or even Jimmy Walker, whose corruption
when compared to Mr. Bloomberg's well-established honesty seems nonetheless
like the innocence of a fawn? (It is possible that he would not have won on
his own merits.)

Ostentation has always been a hallmark of mankind,
and part of the price of freedom and power in ascendant nations. But the day
the baubles shine most brilliantly is the day when the civilization,
distracted from what made it, begins to go down the drain. This is not an
argument for restricting economic liberties, but rather a lamentation of
circumstance and a condemnation of taste. The right may envy by competition
and the left by expropriation, but the objects of such envy are not worthy
of its ruinous influences, and the city is at its best when the fury of
acquisitiveness is least.

Now that New York may be exiting yet another of
many eras of irrational exuberance, it presents an opportunity in the midst
of defeat, for when it is quiet it is far more lovely and profound than when
it is delirious. For a long, clear moment, September 11 blew the dross away
and the real city appeared. When such things arrive, as they always have and
always will—whether in the form of conquest, riots, depression, epidemics,
or war—they and their aftermath should be the cause of reflection.

Whenever New York has endured a blow, its real
strengths have emerged. If it is now on the verge of a long-term diminution
of wealth, or at least a roughly attained sobriety, all the suffering should
not be for nothing. Recovery should mean not just a return to the
fascination with excess that betrayed so many. For one, excess is too
limited a thing to be genuinely satisfying. Grab the first billionaire you
see (it should be easy) and he will tell you that stuff simply doesn't do
the trick.

This is why New York has for too long been a city
in which even the rich are poor. To the contrary, it should be a place in
which even the poor are rich. How to accomplish this is a riddle to which
public policy often proves inadequate and is anyway just a distant follower
of forces of history that assert themselves as far beyond its control as the
weather. As the waves of history sweep through the present what they leave
will depend in large part upon how they are perceived and how each
individual acts upon his perceptions, which law and regulation follow more
than they shape.

How things will turn out is anyone's guess, but it
would be nice if, as in the quiet during and after a snow storm, Manhattan
would reappear to be appreciated in tranquility; if cops, firemen, nurses,
and teachers did not have to live in New Jersey; if students,
waitress-actresses, waiter-painters, and dish-washer-writers did not have to
board nine to a room or like beagles in their parents' condominia; if the
traffic on Park Avenue (as I can personally attest it was in the late 1940s)
were sufficiently sparse that you could hear insects in the flower beds; if
to balance the frenetic getting and spending, the qualities of reserve and
equanimity would retake their once honored places; if celebrity were to be
ignored, media switched off, and the stories of ordinary men and women
assume their deserved precedence; and if for everyone, like health returning
after a long illness, a life of one's own would emerge from an era
tragically addicted to quantity and speed.

Mr. Helprin, a senior fellow at the Claremont Institute, is the author
of, among other works, "Winter's Tale" (Harcourt), "A Soldier of the Great
War" (Harcourt) and, most recently, "Digital Barbarism" (HarperCollins).

Yet—and this is the key part—the president does not
seem to see or hear. He does not respond. He is not supple, able to hear
reservations and see opposition and change tack. He has a grim determination
to bull this thing through. He negotiates each day with Congress, not with
the people. But the people hate Congress! Has he not noticed?

The people have come alive on the issue of
spending—it's too high, it threatens us! He spends more. Everywhere I go, I
hear talk of "hidden taxes" and a certainty that state and federal levies
will go up, putting a squeeze on a middle and upper middle classes that have
been squeezed like oranges and are beginning to see themselves as tired old
rinds. Mr. Obama seems at best disconnected from this anxiety.

The disconnect harms him politically, but more
important it suggests a deepening gulf between the people and their
government, which only adds to growling, chafing national discontent. It
also put the president in the position, only one year in, only 12 months
into a brand-new glistening presidency, of seeming like the same old same
old. There's something tired in all this disconnect, something
old-fashioned, something sclerotic and 1970's about it.

And of course the public is reacting. All
politicians are canaries in coal mines, they're always the first to feel the
political atmosphere. It was significant when the Democrats lost the
governorships of Virginia and New Jersey two months ago. It is significant
that a handful of House and Senate Democrats have decided not to run this
year. And it is deeply significant that a Republican state senator in
Massachusetts, Scott Brown, may topple the Democratic nominee to fill Ted
Kennedy's former seat, Martha Coakley. In a way, the Republicans have
already won—it's a real race, it's close, and in "Don't blame me, I'm from
Massachusetts"!

With his approval ratings falling below 50 per
cent, Mr Obama confessed his disappointment at not delivering key pledges of
his campaign.

"What I haven't been able to do in the midst of
this crisis is bring the country together in a way that we had done in the
inauguration," he told People magazine. "That's what's been lost this year
... that whole sense of changing how Washington works."

Mr Obama, who will mark a year in office next
Wednesday, came to power amid a surge of optimism that he could unify
Democrats and Republicans at a time of national distress, and reverse the
bitter polarity of the George W Bush era.

Instead, there has been little collaboration
between the parties in Congress while floating voters who turned out en
masse for Mr Obama have deserted him in opinion polls. His approval ratings
have tumbled down from the mid-to-high 60s when he took over.

In a Quinnipiac University poll, there was even a
narrow margin among respondents of 35 to 37 per cent on whether the United
States would have been better off had Obama's Republican opponent John
McCain won the 2008 election.

Mr Obama's first year has seen him battle the worst
economic crisis in 70 years, juggle two wars and contend with a revived
al-Qaeda threat.

High unemployment, slow progress of health care
reform and vast bailouts to Wall Street have done most to damage his
approval rating.

The president recognised that Americans'
disappointment at progress made so far was inevitable.

"They have every right to feel deflated because the
economy was far worse than any of us expected,'" he said. "The day I was
sworn in, we now know that we were in the process of losing 650,000 jobs in
December and 700,000 jobs in January, another 650,000 in March. So people
rightly have been anxious this year."

He does however remain popular as a person and as a
leader, with 64 per cent of those asked by CNN saying Mr Obama had the
"personality and leadership" qualities required of a president.

Polls also showed better news for the White House
on national security, despite withering Republican attacks on his handling
of al-Qaeda's attempt to bring down a US-bound jet carrying 290 people on
Christmas Day.

CNN found that 57 per cent approved of the way the
president had managed the attack, compared to 29 per cent who disapproved.

Despite his disappointment, he said that the
passage of health care reform, which is expected over the next month, would
be his proudest moment so far.

"Having a health-care bill through the House and
the Senate is a potentially historic accomplishment. I'll be that much
prouder when I actually sign it," he said.

The Office of Management and Budget has calculated
jobs that are “saved or created” by the Recovery Act through non-existent
congressional districts, phantom ZIP codes, and questionable accounting
practices. To remedy these problems (and in a perfectly-timed response to
bad press) the OMB has decided to re-calculate “saved or created” jobs to
include those that exist independent of any Recovery Act money in the first
place.

In other words, the OMB has made their accounting
on a $787 billion expenditure of taxpayer money completely meaningless.

OMB director Peter Orzag says the new approach
provides a way for recipients to skip over making any kind of “subjective
judgment” on how many jobs were saved or created by their receipt of
Recovery Act money. In lieu of actual judgment, the OMB will automatically
assume a job has been saved or created after a business gets its hands on
Recovery Act money.

“Recipients will no longer be required to sum
various data on hours worked across multiple quarters of data when
calculating job estimates… recipients will more easily and objectively
report on jobs funded with Recovery Act dollars,” said Orzag.

In other words, if a business receives $40,000 in
Recovery Act dollars, a job is automatically tallied in the OMB ticker,
regardless of whether that $40,000 went towards the actual salary of an
employee or fancy office furniture. Businesses won’t even have to fudge the
books to use the federal money towards things like catered lunches –
non-salary expenses now qualify as a legitimate use of Recovery Act dollars.

Let’s say Joe has employed Bob for ten years, and
has no plans on firing him anytime soon. When Joe suddenly receives $40,000
in Recovery Act money, Bob’s job is now the product of the Recovery Act,
even though the job existed independently of that money. The new title for
this accounting practice is saying that Bob’s job has been “funded” instead
of “saved or created” – a phrase that, conveniently, has received the worst
press.

If an employee receives a raise, that counts as a
job, too. And the OMB wants the new calculations done fast, in time for the
“rapidly approaching January reporting period,” just in time for President
Obama’s State of the Union address. OMB announced the new changes on
December 19th – that’s the Saturday before Christmas – and it wasn’t even
noticed until a small nonprofit watchdog, ProPublica, noticed the memo a
month later.

"The stimulus has been such a grand failure that
the administration has stooped to unabashedly cooking the books," said
Republican Study Committee Chairman Tom Price (R-GA). "Moving the goal posts
and tinkering with math formulas won't put the country back to work. The
ridiculous 'saved or created' label needed to go, but the administration's
new stimulus metric is even more misleading.”

Phil Kerpen, the director of Americans for
Prosperity, said that the bigger issue isn’t the accounting practices –
instead, it’s the fact that government thinks it can create jobs in the
first place.

“The bottom line is that every dollar government
spends first has to be taxed, borrowed, or printed. How can government
spending make us richer when all three of those options make us poorer?”

Let me conclude
with a political note. The main reason for reform is to serve the nation. If we
don’t get major financial reform now, we’re laying the foundations for the next
crisis. But there are also political reasons to act. For there’s a populist rage
building in this country, and President Obama’s kid-gloves treatment of the
bankers has put Democrats on the wrong side of this rage. If Congressional
Democrats don’t take a tough line with the banks in the months ahead, they will
pay a big price in November. Paul Krugman, Bubbles and
the Banks," The New York Times, January 7, 2010 ---
http://www.nytimes.com/2010/01/08/opinion/08krugman.html?hpw

When a non-American scholar I admired let slip a
casual reference to "American corruption" a few years ago, my chauvinistic
pride was wounded. This isn't Mexico, after all, or even Italy, where bribes
are the normal social lubricant. Still, an unsentimental examination of
government dollars at work seems to confirm my friend's observation.

A small example: The U.S. government has announced
plans to spend $340 million on an advertising campaign to promote the
Census, including $2.5 million for ads during the Super Bowl. Though the
nation has been collecting this data for 220 years, it seems we now need
commercial jingles to complete the forms. Or could there be another agenda?
The government, reports The Hill newspaper, will target $80 million of those
dollars to racial and ethnic minorities and non-English speakers -- groups
that vote disproportionately Democratic. Nor will Democrats permit efforts
to limit the count to those here legally. An effort by Sen. David Vitter,
R-La., to exclude illegal aliens from the count went nowhere.

Illegal aliens don't (usually) vote, of course. But
when they are counted in the Census, they do affect representation in the
Congress. So some of the money you pay in taxes will go toward increasing
the legislative clout of one party.

That same party has seen to its own perpetuation in
other ways, too. Consider the $787 billion stimulus bill. Veronique de Rugy
and Jerry Brito of George Mason University report that "a total of 56,399
contracts and grants totaling $157,028,362,536 were awarded in this first
quarter for which Recovery.gov reports are available. The number of jobs
claimed as created or saved is 638,826.54 -- an average of $245,807.51 per
job."

But it gets more interesting. "There are 177
districts represented by Republicans and 259 represented by Democrats," they
write. "On average, Democratic districts received 1.6 times more awards than
Republican ones. The average number of awards per Republican district is 94,
while the average number of awards per Democratic district is 152."
Democratic districts also received nearly twice the dollar value of funds as
Republican ones.

"The cost of illegal immigration has exhausted the Arizona State Treasury. In
order to pay for the federal government's responsibility of securing our
national borders and incarcerating individuals who enter the United States
illegally and commit crimes, the state has incurred hundreds of millions of
dollars of debt to pay these bills," said Treasurer Dean Martin."Martin: Arizona taxpayers owed $1
billion from illegal immigration," KVOA, January 6, 2010 ---
http://www.kvoa.com/news/arizona-taxpayers-owed-1-billion-from-illegal-immigration/

Professor Blinder, a professor of economics and public affairs at Princeton
University and vice chairman of the Promontory Interfinancial Network, is a
former vice chairman of the Federal Reserve Board ---
http://en.wikipedia.org/wiki/Alan_S._Blinder

They say markets are alternately ruled by greed and
fear. Well, our panic-stricken financial markets have been ruled by fear for
so long that a little greed might serve as an elixir. But everybody knows
you can overdose on an elixir.

When economists first heard Gekko's now-famous
dictum, "Greed is good," they thought it a crude expression of Adam Smith's
"Invisible Hand"—which is one of history's great ideas. But in Smith's
vision, greed is socially beneficial only when properly harnessed and
channeled. The necessary conditions include, among other things: appropriate
incentives (for risk taking, etc.), effective competition, safeguards
against exploitation of what economists call "asymmetric information" (as
when a deceitful seller unloads junk on an unsuspecting buyer), regulators
to enforce the rules and keep participants honest, and—when
relevant—protection of taxpayers against pilferage or malfeasance by others.
When these conditions fail to hold, greed is not good.

Plainly, they all failed in the financial crisis.
Compensation and other types of incentives for risk taking were badly
skewed. Corporate boards were asleep at the switch. Opacity reduced
effective competition. Financial regulation was shamefully lax. Predators
roamed the financial landscape, looting both legally and illegally. And when
the Treasury and Federal Reserve rushed in to contain the damage, taxpayers
were forced to pay dearly for the mistakes and avarice of others. If you
want to know why the public is enraged, that, in a nutshell, is why.

American democracy is alleged to respond to public
opinion, and incumbents are quaking in their boots. Yet we stand here in
January 2010 with virtually the same legal and regulatory system we had when
the crisis struck in the summer of 2007, with only minor changes in Wall
Street business practices, and with greed returning big time. That's both
amazing and scary. Without major financial reform, "it" can happen again.

It is true that regulators are much more watchful
now, that Bernie Madoff is in jail (where he should have more company), and
that much of "fancy finance" died a violent death in the marketplace. All
good. But history shows that financial markets have a remarkable ability to
forget the past and revert to their bad old ways. And we've made essentially
no progress on lasting financial reform.

View Full Image

Chad Crowe Perhaps reformers just need more
patience. The Treasury made a fine set of proposals that the president's
far-flung agenda left him little time to pursue—so far. The House of
Representatives passed a pretty good financial reform bill late last year.
And while there's been no action in the Senate as yet, at least they are
talking about it. As Yogi Berra famously said, "it ain't over 'til it's
over."

But I'm worried. The financial services industry,
once so frightened that it scurried under the government's protective
skirts, is now rediscovering the virtues of laissez faire and the joys of
mammoth pay checks. Wall Street has mounted ferocious lobbying campaigns
against virtually every meaningful aspect of reform, and their efforts seem
to be paying off. Yes, the House passed a good bill. Yet it would have been
even better but for several changes Financial Services Committee Chairman
Barney Frank (D., Mass.) had to make to get it through the House. Though the
populist political pot was boiling, lobbyists earned their keep.

I expect they'll earn more. Even before Senate
Banking Committee Chairman Christopher Dodd (D., Conn.) announced his
retirement, it appeared likely that any bill that could survive the Senate
would be weaker than the House bill. Then came Mr. Dodd's announcement,
which reshuffled the deck.

There are two diametrically opposed hypotheses
about how his retirement will affect the legislation. Conventional wisdom
holds that it is good news for reformers: Freed from crass political
concerns, Mr. Dodd can now steer his committee more firmly toward a better
bill. Let's hope so. But an opposing view reminds us that lame ducks lose
power rapidly in power-mad Washington. To lead, someone must be willing to
follow.

My fear is that a once-in-a-lifetime opportunity to
build a sturdier and safer financial system is slipping away. Let's remember
what happened to health-care reform (a success story!) as it meandered
toward 60 votes in the Senate. The world's greatest deliberative body turned
into a bizarre bazaar in which senators took turns holding the bill hostage
to their pet cause (or favorite state). With zero Republican support, every
one of the 60 members of the Democratic caucus held an effective veto—and
several used it.

If financial reform receives the same treatment, we
are in deep trouble, both politically and substantively.

To begin with the politics, recent patterns make it
all too easy to imagine a Senate bill being bent toward the will of
Republicans—who want weaker regulation—but then garnering no Republican
votes in the end. We've seen that movie before. If the sequel plays in
Washington, passing a bill will again require the votes of every single
Democrat plus the two independents. With veto power thus handed to each of
60 senators, the bidding war will not be pretty.

On substance, while both health-care and financial
reform are complex, health care at least benefited from broad agreement
within the Democratic caucus on the core elements: expanded but not
universal coverage, subsidies for low-income families, enough new revenue to
pay the bills, insurance exchanges, insurance reform (e.g., no denial of
coverage for pre-existing conditions), and experiments in cost containment
to "bend the curve." The fiercest political fights were over peripheral
issues like the public option, abortion rights (how did that ever get in
there?), and whether Nebraskans should pay like other Americans (don't try
to explain that one to foreigners).

But financial regulatory reform is not like that.
Every major element is contentious: a new resolution authority for ailing
institutions, a systemic risk regulator, a separate consumer protection
agency, whether to clip the Fed's wings or broaden them, restrictions on
executive compensation, regulation of derivatives, limits on proprietary
trading, etc.

The elements are interrelated; you can't just pick
one from column A and two from column B. What's worse, several components
would benefit from international cooperation—for example, consistent
regulation of derivatives across countries. This last point raises the
degree of difficulty substantially. No one worried about international
agreement while Congress was writing a health-care bill.

All and all, enacting sensible, comprehensive
financial reform would be a tall order even if our politics were more civil
and bipartisan than they are. To do so, at least a few senators—Republicans
or Democrats—will have to temper their partisanship, moderate their
parochial instincts, slam the door on the lobbyists, and do what is right
for America. Figure the odds. Gordon Gekko already has.

Italian
companies—with Rome's backing—have equipped Iran's military and contributed to
the regime's satellite and possibly nuclear programs. When it comes to appeasing
the Islamic Republic, no other Western nation has stooped lower than Italy. Amid
the international outrage over the Iranian regime's brutalization of its own
people, Italian Foreign Minister Franco Frattini warned Europe "must not burn
every bridge because Iran is a key figure" in the region. While rejecting any
military action to stop Tehran's nuclear weapons program, Mr. Frattini urged the
West to "avoid those [sanctions] that are connected with Iranian national pride.Giulio Meotti, "The
Rome-Tehran Axis: Italian companies—with Rome's backing—have equipped
Iran's military and contributed to the regime's satellite and possibly nuclear
programs," The Wall Street Journal, January 14, 2010 ---
http://online.wsj.com/article/SB10001424052748703510304574625620914295450.html?mod=wsj_share_twitter

That this verdict was pronounced by
someone like Posner, who is associated with the University of Chicago and
the free-market law and economics movement, gave moral support to all the
politicians who were intent on exploiting the recession (as they exploit all
crises) to increase government control of the economy.

But what exactly is this "capitalism" that
is blamed?

The word "capitalism" is used in two
contradictory ways. Sometimes it's used to mean the free market, or laissez
faire. Other times it's used to mean today's government-guided economy.
Logically, "capitalism" can't be both things. Either markets are free or
government controls them. We can't have it both ways.

The truth is that we don't have a free
market -- government regulation and management are pervasive -- so it's
misleading to say that "capitalism" caused today's problems. The free market
is innocent.

But it's fair to say that crony capitalism
created the economic mess.

Crony capitalism, by the way, will be the
subject of my TV show this week on the Fox Business Network (Thursday at 8
p.m. Eastern; Friday at 10).

What is crony capitalism? It's the
economic system in which the marketplace is substantially shaped by a cozy
relationship among government, big business and big labor. Under crony
capitalism, government bestows a variety of privileges that are simply
unattainable in the free market, including import restrictions, bailouts,
subsidies and loan guarantees.

Crony capitalism is as old as the republic
itself. Congress' first act in 1789 -- on July 4, no less! -- was a tariff
on foreign goods to protect influential domestic business interests.

We don't have to look far to see how
crony-dominated American capitalism is today. The politically connected tire
and steel industries get government relief from a "surge" of imports from
China. (Who cares if American consumers want to pay less for Chinese steel
and tires?) Crony capitalism, better know as government bailouts, saved
General Motors and Chrysler from extinction, with Barack Obama cronies the
United Auto Workers getting preferential treatment over other creditors and
generous stock holdings (especially outrageous considering that the union
helped bankrupt the companies in the first place with fat pensions and
wasteful work rules). Banks and insurance companies (like AIG) are bailed
out because they are deemed too big to fail. Favored farmers get crop
subsidies.

If free-market capitalism is a private
profit-and-loss system, crony capitalism is a private-profit and public-loss
system. Companies keep their profits when they succeed but use government to
stick the taxpayer with the losses when they fail. Nice work if you can get
it.

The role that regulation plays in crony
capitalism is unappreciated. Critics of business assume that regulation is
how government tames corporations. But historically, regulation has been how
one set of businesses (usually bigger, well-connected ones) gains advantages
over others. Timothy Carney's book about this,"The Big Ripoff: How
Big Business and Big Government Steal Your Money", explains why Phillip Morris joined the "war
on tobacco," General Motors pushed for clean-air legislation and Archer
Daniels Midland likes ethanol subsidies.

As economist Bruce Yandle writes,
"(I)ndustry support of regulation is
not rare at all; indeed, it is the norm."

If you wonder why, ask yourself: Which are
more likely to be hampered by vigorous regulatory standards: entrenched
corporations with their overstaffed legal and accounting departments or
small startups trying to get off the ground? Regulation can kill competition
-- and incumbents like it that way.

When will Michael Moore figure this out?
His last movie attacked what he calls capitalism, but his own work shows
that it's not the free market that causes the ills he abhors. Had he called
the movie
"Crony Capitalism: A Love Story," he would have been on firmer ground.

It's time we acknowledged the difference
between the free market, which is based on freedom and competition, and
crony capitalism, which is based on privilege. Adam Smith knew the
difference -- and chose the free-market.

Happy New Year, readers, but before we get on with
the debates of 2010, there's still some ugly 2009 business to report: To
wit, the Treasury's Christmas Eve taxpayer massacre lifting the $400 billion
cap on potential losses for Fannie Mae and Freddie Mac as well as the limits
on what the failed companies can borrow.

The Treasury is hoping no one notices, and no
wonder. Taxpayers are continuing to buy senior preferred stock in the two
firms to cover their growing losses—a combined $111 billion so far. When
Treasury first bailed them out in September 2008, Congress put a $200
billion limit ($100 billion each) on federal assistance. Last year, the
Treasury raised the potential commitment to $400 billion. Now the limit on
taxpayer exposure is, well, who knows?

The firms have made clear that they may only be
able to pay the preferred dividends they owe taxpayers by borrowing still
more money . . . from taxpayers. Said Fannie Mae in its most recent
quarterly report: "We expect that, for the foreseeable future, the earnings
of the company, if any, will not be sufficient to pay the dividends on the
senior preferred stock. As a result, future dividend payments will be
effectively funded from equity drawn from the Treasury."

The loss cap is being lifted because the government
has directed both companies to pursue money-losing strategies by modifying
mortgages to prevent foreclosures. Most of their losses are still coming
from subprime and Alt-A mortgage bets made during the boom, but Fannie
reported last quarter that loan modifications resulted in $7.7 billion in
losses, up from $2.2 billion the previous quarter.

The government wants taxpayers to think that these
are profit-seeking companies being nursed back to health, like AIG. But at
least AIG is trying to make money. Fan and Fred are now designed to lose
money, transferring wealth from renters and homeowners to overextended
borrowers.

Even better for the political class, much of this
is being done off the government books. The White House budget office still
doesn't fully account for Fannie and Freddie's spending as federal outlays,
though Washington controls the companies. Nor does it include as part of the
national debt the $5 trillion in mortgages—half the market—that the
companies either own or guarantee. The companies have become Washington's
ultimate off-balance-sheet vehicles, the political equivalent of Citigroup's
SIVs, that are being used to subsidize and nationalize mortgage finance.

This subterfuge also explains the Christmas Eve
timing. After December 31, Team Obama would have needed the consent of
Congress to raise the taxpayer exposure beyond $400 billion. By law,
negative net worth at the companies forces them into "receivership," which
means they have to be wound down.

Unlimited bailouts will now allow the Treasury to
keep them in conservatorship, which means they can help to conserve the
Democratic majority in Congress by increasing their role in housing finance.
With the Federal Reserve planning to step back as early as March from buying
$1.25 trillion in mortgage-backed securities, Team Obama is counting on Fan
and Fred to help reflate the housing bubble.

That's why on Christmas Eve Treasury also rolled
back a key requirement of the 2008 bailout—that Fan and Fred begin shrinking
the portfolios of mortgages they own on their own account, which total a
combined $1.5 trillion. Risk-taking will now increase, so that the
government can once again follow Barney Frank's infamous advice that the
companies "roll the dice" on subsidies for affordable housing.

All of which would seem to make the CEOs of Fannie
and Freddie the world's most overpaid bureaucrats. A release from the
Federal Housing Finance Agency that also fell in the Christmas Eve forest
reports that, after presiding over a combined $24 billion in losses last
quarter, Fannie CEO Michael Williams and Freddie boss Ed Haldeman are
getting substantial raises. Each is now eligible for up to $6 million
annually.

Freddie also has one of the world's highest-paid
human resources executives. Paul George's total compensation can run up to
$2.7 million. It must require a rare set of skills to spot executives
capable of losing billions of dollars.

Where is Treasury's pay czar when we actually need
him? You guessed it, Fannie and Freddie are exempt from the rules applied to
the TARP banks. The government gave away the game that these firms are no
longer in the business of making profits when it announced that the CEOs
will be paid entirely in cash, though it is discouraging that practice at
other big banks. Who would want stock in the Department of Housing and Urban
Development?

Meanwhile, these biggest of Beltway losers continue
to be missing from the debate over financial reform. The Treasury still
hasn't offered its long-promised proposals even as it presses reform on
banks that played a far smaller role in the financial mania and panic.
Senate Banking Chairman Chris Dodd (D., Conn.) and ranking Republican
Richard Shelby recently issued a joint statement on their "progress" toward
financial regulatory reform, but their list of goals also doesn't mention
Fannie or Freddie.

Since Mr. Shelby has long argued for reform of
these government-sponsored enterprises, their absence suggests that Mr.
Dodd's longtime effort to protect Fan and Fred is once again succeeding. It
would be worse than a shame if, having warned about the iceberg for years,
Mr. Shelby now joins Mr. Dodd in pretending that these ships aren't sinking.

In today's Washington, we suppose, it only makes
sense that the companies that did the most to cause the meltdown are being
kept alive to lose even more money. The
politicians have used the panic as an excuse to reform everything but
themselves.

On Christmas Eve, when most Americans' minds were
on other things, the Treasury Department announced that it was removing the
$400 billion cap from what the administration believes will be necessary to
keep Fannie Mae and Freddie Mac solvent. This action confirms that the
decade-long congressional failure to more closely regulate these two
government-sponsored enterprises (GSEs) will rank for U.S. taxpayers as one
of the worst policy disasters in our history.

Fannie and Freddie's congressional sponsors—some of
whom are now leading the administration's effort to "reform" the financial
system—have a lot to answer for. Rep. Barney Frank (D., Mass.), chairman of
the House Financial Services Committee, sponsored legislation adopted in
2008 that established a new regulatory structure for the GSEs. But by then
it was far too late. The GSEs had begun buying risky loans in 1993 to meet
the "affordable housing" requirements established under congressional
direction by the Department of Housing and Urban Development (HUD).

Most of the damage was done from 2005 through 2007,
when Fannie and Freddie were binging on risky mortgages. Back then, Mr.
Frank was the bartender, denying that there was any cause for concern, and
claiming that he wanted to "roll the dice" on subsidized housing support.

In 2005, the Senate Banking Committee, then
controlled by Republicans, adopted tough regulatory legislation that would
have established more auditing and oversight of the two agencies. But it was
passed out of committee on a partisan vote, and with no Democratic support
it never came to a vote.

By the end of 2008, Fannie and Freddie held or
guaranteed approximately 10 million subprime and Alt-A mortgages and
mortgage-backed securities (MBS)—risky loans with a total principal balance
of $1.6 trillion. These are now defaulting at unprecedented rates,
accounting for both their 2008 insolvency and their growing losses today.
Since 2008, under government control, the two agencies have continued to buy
dicey mortgages in order to stabilize housing prices.

There is more to this ugly situation. New research
by Edward Pinto, a former chief credit officer for Fannie Mae and a housing
expert, has found that from the time Fannie and Freddie began buying risky
loans as early as 1993, they routinely misrepresented the mortgages they
were acquiring, reporting them as prime when they had characteristics that
made them clearly subprime or Alt-A.

In general, a subprime mortgage refers to the
credit of the borrower. A FICO score of less than 660 is the dividing line
between prime and subprime, but Fannie and Freddie were reporting these
mortgages as prime, according to Mr. Pinto. Fannie has admitted this in a
third-quarter 10-Q report in 2008.

An Alt-A mortgage is one in which the quality of
the mortgage or the underwriting was deficient; it might lack adequate
documentation, have a low or no down payment, or in some other way be more
likely than a prime mortgage to default. Fannie and Freddie were also
reporting these mortgages as prime, according to Mr. Pinto.

It is easy to see how this misrepresentation was a
principal cause of the financial crisis.

Market observers, rating agencies and investors
were unaware of the number of subprime and Alt-A mortgages infecting the
financial system in late 2006 and early 2007. Of the 26 million subprime and
Alt-A loans outstanding in 2008, 10 million were held or guaranteed by
Fannie and Freddie, 5.2 million by other government agencies, and 1.4
million were on the books of the four largest U.S. banks.

In addition, about 7.7 million subprime and Alt-A
housing loans were in mortgage pools supporting MBS issued by Wall Street
banks—which had long before been driven out of the prime market by Fannie
and Freddie's government-backed, low-cost funding. The vast majority of
these MBS were rated AAA, because the rating agencies' models assumed that
the losses that are incurred by subprime and Alt-A loans would be within the
historical range for the number of high-risk loans known to be outstanding.

But because of Fannie and Freddie's mislabeling,
there were millions more high-risk loans outstanding. That meant default
rates as well as the actual losses after foreclosure were going to be
outside all prior experience. When these rates began to show up early in
2007, it was apparent something was seriously wrong with assumptions on
which AAA ratings had been based.

Losses, it was now certain, would invade the AAA
tranches of the mortgage-backed securities outstanding. Investors, having
lost confidence in the ratings, fled the MBS market and ultimately the
market for all asset-backed securities. They have not yet returned.

By the end of 2007, the MBS market collapsed
entirely. Assets once carried at par on financial institutions' balance
sheets could not be sold except at distress prices. This raised questions
about the stability and even the solvency of most of the world's largest
financial institutions.

The first major victim was Bear Stearns, the
smallest of the five major Wall Street investment banks but one invested
heavily in risky MBS. The government rescue of Bear Stearns in March 2008
signaled that the U.S. government, and perhaps others, would stand behind
other large financial institutions. The moral hazard this engendered was
deadly when Lehman Brothers' solvency came under challenge. Spreads in the
credit default swap market for Lehman, despite massive short-selling, showed
very little alarm by investors until just before the fateful weekend of
Sept. 13 and 14, when they blew out on fears that the firm might not be
rescued.

By that time it was too late for Lehman's
counterparties to take the protective action that might have cushioned the
shock. As it turned out, however, none of Lehman's largest counterparties
failed—so much for the idea that the financial market is
"interconnected"—but all market participants now realized they had to know
the true financial condition of their counterparties. The result was a
freeze-up in interbank lending.

For most people, that freeze-up is the beginning of
the financial crisis. But its roots go back to 1993, when Fannie and Freddie
began stocking up on subprime and other risky loans while reporting them as
prime.

Why Fannie and Freddie did this is still to be
determined. But the leading candidate is certainly HUD's affordable housing
regulations, which by 2007 required that 55% of all the loans the agencies
acquired had to be made to borrowers at or below the median income, with
almost half of these required to be low-income borrowers.

Another likely reason for Fannie and Freddie's
mislabeling of mortgages was their desire to retain congressional support by
"rolling the dice" while making believe they weren't betting. With the
Federal Housing Administration, Wall Street investment banks, and Fannie and
Freddie all competing for these loans, the bottom of the barrel had long
before been scraped and the financial system set up for a crisis.

Rehabilitating Tom DeLay's
reputation always seemed hopeless, or so we thought—but then again,
President Obama ran on hope. Against the odds Democrats are making the
former GOP Majority Leader look better by comparison as they bypass the
ordinary institutions of deliberative democracy in the final sprint to pass
ObamaCare.

Instead of appointing a
formal conference committee to reconcile the House and Senate health bills,
a handful of Democratic leaders will now negotiate in secret by themselves.
Later this month, presumably white smoke will rise from the Capitol Dome,
and then Nancy Pelosi, Harry Reid and the college of Democratic cardinals
will unveil their miracle. The new bill will then be rushed through both
chambers with little public scrutiny or even the chance for the Members to
understand what they're passing.

Evading conference has
become standard operating procedure in this Congress, though you might think
they'd allow for the more open and thoughtful process on what Mr. Obama has
called "the most important piece of social legislation since the Social
Security Act passed in the 1930s and the most important reform of our
health-care system since Medicare passed in the 1960s."

This black-ops mission ought
to be a particular embarrassment for Mr. Obama, given that he campaigned on
transparent government. At a January 2008 debate he said that a health-care
overhaul would not be negotiated "behind closed doors, but bringing all
parties together, and broadcasting those negotiations on C-Span so the
American people can see what the choices are."

The C-Span pledge became a
signature of his political pitch. During a riff at the San Francisco
Chronicle about "accountability," he added that "I would not underestimate
the degree to which shame is a healthy emotion and that you can shame
Congress into doing the right thing if people know what's going on."

Apparently this Congress
knows no shame. In a recent letter to Congressional leaders, C-Span
president Brian Lamb committed his network to airing "all important
negotiations," which if allowed would give "the public full access, through
television, to legislation that will affect the lives of every single
American." No word yet from the White House.

At a press conference in
December, even Mrs. Pelosi said that "we would like to see a full
conference." One reason she mentioned was that "there is a great deal of
work involved in reviewing a bill and seeing what all the ramifications are
of it," though her real motive at the time was that a conference seemed like
a chance to drag the bill closer to the House version.

With public support
collapsing, however, Democrats now think the right bill is any bill—and
soon. Democrats know that a conference forces the majority party to cast
votes on awkward motions and would give the Republicans who have been shut
out for months a chance to participate. This sunlight, and the resulting
public attention, might scare off wavering Democrats and defeat the bill.
Ethics rules the Democrats passed in 2007 also make it harder to "airdrop"
into conference reports the extra bribes they will no doubt add to grease
the way for final passage.

Democrats howled at the
strong-arm tactics Mr. DeLay used to pass Medicare drug coverage in 2003,
and so did we. But they've managed to create an even more destructive bill,
and their tactics are that much worse. We can't even begin to imagine the
uproar if the Republicans had tried to privatize Social Security with such
contempt for the democratic process and public opinion.

The reason is simple: the State Department insists
that “possible” and even “suspected” terrorists deserve visas. Denials and
revocations are reserved only for known terrorists. Whether or not “dots” had
been “connected,” Abdulmutallab never could have come as close as he did to
successful mass murder had the State Department immediately revoked his visa
when his father warned U.S. officials about his son’s terrorist ties. Without a
valid visa, the young Nigerian would not have been en route to the U.S. in the
first place. Joel Mowbray, "State Department
Sides With “Suspected” Terrorists Seeking Visas to U.S.," Townhall,
January 11, 2010 ---
http://townhall.com/columnists/JoelMowbray/2010/01/11/state_department_sides_with_%e2%80%9csuspected%e2%80%9d_terrorists_seeking_visas_to_us

A recent move by the Treasury Department to remove
$200 billion caps on assistance to Fannie Mae and Freddie Mac eliminates any
doubt that taxpayers will pay for all their losses for the next three years
and appears to be a major step toward formally nationalizing the housing
enterprises, analysts say.

The government took control of the companies, and
effectively much of the U.S. mortgage market, in September 2008 and started
purchasing all their mortgage-backed securities. But the Treasury previously
used the $200 billion caps on aiding each company to try to limit taxpayer
exposure to their mounting losses.

Republicans charge that Treasury has given the
Depression-era companies a "blank check" to pay for burgeoning losses on
defaulting loans.

The two housing enterprises last year guaranteed
and secured nearly 70 percent of new mortgages, primarily made to "prime"
borrowers with the best credit ratings, while the Federal Housing
Administration insured most loans to subprime borrowers, leaving only a tiny
share of the mortgage market in private hands.

In its Christmas Eve statement announcing the
little-noticed changes, the Treasury insisted that it wants to preserve "an
environment where the private market is able to provide a larger source of
mortgage finance."

But analysts say Treasury's move may push off any
return to a normal mortgage market for years -- possibly forever. Treasury
removed the liability caps for three years and loosened restrictions on
Fannie's and Freddie's purchases of their own mortgage securities --
enabling them to maintain their dominant share of the mortgage market.

"These actions would preserve and strengthen the
governments involvement and control over the countrys housing finance system
and make it harder to reintroduce substantial private-sector involvement
later on," said Edward Pinto, a housing consultant and former chief credit
officer at Fannie Mae.

When combined with a separate move by regulators
not to provide common stock as part of executive compensation at Fannie and
Freddie, the administration's recent actions suggest that it is moving to
nationalize the companies, Mr. Pinto said.

Nationalization, or total government control and
ownership of the companies, would wipe out the value of Fannie and Freddie
stock, making it worthless as a way to pay executives. The value of the
stock has plummeted to between $1 and $2 a share in the wake of the
government's takeover.

Treasury spokesman Andrew Williams declined to
elaborate on the Treasury's actions, but denied that nationalization was the
goal.

The administration is preparing to present its
proposals for governing Fannie and Freddie in the future -- a major question
not addressed in financial reform legislation pending in Congress -- when it
presents its budget in February. Options range from fully nationalizing the
enterprises to reprivatizing them or turning them into public "utilities"
like the closely regulated gas and electric companies.

Sen. Bob Corker, Tennessee Republican, questioned
whether the administration was moving toward nationalization in a letter to
Treasury Secretary Timothy F. Geithner this week, urging the Treasury to
incorporate fully in its February budget the cost of any additional Fannie
and Freddie liabilities the government is acquiring.

"Due to the level of support that this
administration and the previous one have created for Fannie Mae and Freddie
Mac, would you not consider your latest move an effective nationalization?"
asked Mr. Corker, a member of the Senate Banking, Housing and Urban Affairs
Committee. "If so, then the liabilities of these two firms should absolutely
be reflected on the balance sheet of the U.S. Treasury."

Fully nationalizing the enterprises would
permanently increase costs for taxpayers and would bloat the government's
balance sheets. Fannie and Freddie currently guarantee about $5.5 trillion
of outstanding mortgages and debts -- nearly as much as the Treasury's own
public debt. If the companies were fully nationalized, the government's
books would have to reflect both the revenues and losses from those
obligations.

But even if the administration and Congress stop
short of formally incorporating the enterprises into the federal government,
the removal of the caps at least for now has eliminated any doubt that the
government stands behind all Fannie and Freddie obligations and will cover
their losses for the next three years.

Treasury reportedly told Mr. Corker that the move
was needed to calm markets.

Apparently, it deemed the certainty of government
backing to be critical at a time when the Federal Reserve has announced that
it will end its program of purchasing $1.25 trillion in Fannie and Freddie
mortgage bonds in March. The Fed's program -- another unprecedented federal
intervention in the mortgage market -- provided most of the funding to
finance prime mortgages in the past year.

Many housing analysts and economists worry that the
Fed's withdrawal from the mortgage market will cause a sharp rise in 30-year
mortgage rates of as much as one percentage point from 5 percent to 6
percent as private investors demand higher yields to compensate for the
increased likelihood of defaults on mortgages.

Nearly one in eight mortgages is in default, with
prime mortgages guaranteed by Fannie and Freddie having taken over subprime
last year as the principal source of delinquencies.

Rapidly rising delinquencies have prompted some
analysts to predict a collapse in the mortgage market once the Fed stops
buying most of Fannie and Freddie's debt. The Treasury's move appears
designed to reassure investors and prevent that from happening.

"When you have someone as big as the Fed was in
2009 walking away cold turkey, there have to be bumps along the road," said
Ajay Rahadyaksha, managing director at Barclays Capital. But he expects
investors to be enticed back into the mortgage market because they have
"massive amounts of cash" to invest.

While full nationalization of the enterprises would
be controversial, and likely provoke overwhelming Republican opposition,
most parties agree that after the massive efforts to prop up the mortgage
market in the past two years it would be difficult for the government to
entirely extricate itself in the future.

Former Treasury Secretary Henry M. Paulson Jr. said
he intended to keep the government's options open when he designed the plan
to take 79.9 percent control of Fannie and Freddie and put them under
government conservatorship.

But he said they should not be returned to their
previous ambiguous structure, where they were owned by private stockholders
even as they carried out a government mission. He said the best structure in
the future might be to turn them into public utilities that funnel the
government's guarantee on mortgage-backed securities for a fee.

The Mortgage Bankers Association and other private
groups have endorsed a permanent federal role in guaranteeing pools of prime
mortgages, perhaps through a revamped Fannie and Freddie.

One reason heavy government involvement is likely
to continue is that Fannie and Freddie -- unlike many banks that received
bailouts from the Treasury -- likely will never be able to fully repay the
nearly $100 billion in assistance they have received so far from taxpayers,
analysts say.

Their losses are growing by the day, and many of
them now are incurred as a result of new mandates from the Treasury and
Congress to spearhead the government's efforts to alleviate the home
foreclosure crisis and make credit available as widely as possible.

For example, Fannie recently said it may liberalize
its rules for mortgages used to buy condominiums in Florida -- an area that
has been plagued with high rates of default and foreclosure, while it is
giving preference to homeowners over investors when it sells foreclosed
properties, even if investors offer a better deal.

Many analysts expect the administration to soon
increase the subsidies the enterprises are providing to homeowners and banks
that renegotiate mortgages to try to avoid foreclosure, and some suspect it
already is using Fannie and Freddie to make loans available to riskier
borrowers.

Mr. Corker said the proliferation of government
mandates for the enterprises has essentially turned them into "a direct
extension of the Treasury Department."

Stock-market indices are not
much good as yardsticks of social progress, but as another low, dishonest
decade expires let us note that, on 2000s first day of trading, the Dow
Jones Industrial Average closed at 11357 while the Nasdaq Composite Index
stood at 4131, both substantially higher than where they are today. The
Nasdaq went on to hit 5000 before collapsing with the dot-com bubble, the
first great Wall Street disaster of this unhappy decade. The Dow got north
of 14000 before the real-estate bubble imploded.

And it was supposed to have
been such an awesome time, too! Back in the late '90s, in the crescendo of
the Internet boom, pundit and publicist alike assured us that the future was
to be a democratized, prosperous place. Hierarchies would collapse, they
told us; the individual was to be empowered; freed-up markets were to be the
common man's best buddy.

Such clever hopes they were.
As a reasonable anticipation of what was to come they meant nothing. But
they served to unify the decade's disasters, many of which came to us
festooned with the flags of this bogus idealism.

Before "Enron" became
synonymous with shattered 401(k)s and man-made electrical shortages, the
public knew it as a champion of electricity deregulation—a freedom fighter!
It was supposed to be that most exalted of corporate creatures, a "market
maker"; its "capacity for revolution" was hymned by management theorists;
and its TV commercials depicted its operations as an extension of humanity's
quest for emancipation.

Similarly, both Bank of
America and Citibank, before being recognized as "too big to fail," had
populist histories of which their admirers made much. Citibank's long
struggle against the Glass-Steagall Act was even supposed to be evidence of
its hostility to banking's aristocratic culture, an amusing image to
recollect when reading about the $100 million pay reportedly pocketed by one
Citi trader in 2008.

The Jack Abramoff lobbying
scandal showed us the same dynamics at work in Washington. Here was an
apparent believer in markets, working to keep garment factories in Saipan
humming without federal interference and saluted for it in an op-ed in the
Saipan Tribune as "Our freedom fighter in D.C."

But the preposterous
populism is only one part of the equation; just as important was our failure
to see through the ruse, to understand how our country was being disfigured.

Ensuring that the public
failed to get it was the common theme of at least three of the decade's
signature foul-ups: the hyping of various Internet stock issues by Wall
Street analysts, the accounting scandals of 2002, and the triple-A ratings
given to mortgage-backed securities.

The grand, overarching theme
of the Bush administration—the big idea that informed so many of its sordid
episodes—was the same anti-supervisory impulse applied to the public sector:
regulators sabotaged and their agencies turned over to the regulated.

The public was left to read
the headlines and ponder the unthinkable: Could our leaders really have
pushed us into an unnecessary war? Is the republic really dividing itself
into an immensely wealthy class of Wall Street bonus-winners and everybody
else? And surely nobody outside of the movies really has the political clout
to write themselves a $700 billion bailout.

What made the oughts so
awful, above all, was the failure of our critical faculties. The problem was
not so much that newspapers were dying, to mention one of the lesser
catastrophes of these awful times, but that newspapers failed to do their
job in the first place, to scrutinize the myths of the day in a way that
might have prevented catastrophes like the financial crisis or the Iraq war.

The folly went beyond the
media, though. Recently I came across a 2005 pamphlet written by historian
Rick Perlstein berating the big thinkers of the Democratic Party for their
poll-driven failure to stick to their party's historic theme of economic
populism. I was struck by the evidence Mr. Perlstein adduced in the course
of his argument. As he tells the story, leading Democratic pollsters found
plenty of evidence that the American public distrusts corporate power; and
yet they regularly advised Democrats to steer in the opposite direction, to
distance themselves from what one pollster called "outdated appeals to class
grievances and attacks upon corporate perfidy."

This was not a party that
was well-prepared for the job of iconoclasm that has befallen it. And as the
new bunch muddle onward—bailing out the large banks but (still) not
subjecting them to new regulatory oversight, passing a health-care reform
that seems (among other, better things) to guarantee private insurers
eternal profits—one fears they are merely presenting their own ample
backsides to an embittered electorate for kicking.

The Obama administration—and state and local
governments—should brace themselves for fraud on an Olympic scale as
hundreds of billions of taxpayer dollars continue to pour into job creation
efforts.

Where there are government handouts, fraud, waste
and abuse are rarely far behind. The sheer scale of the first and expected
second stimulus packages combined with the multitiered distribution
channel—from Washington to the states to community agencies to contractors
and finally to workers—are simply irresistible catnip to con men and
thieves.

There are already warning signs. The Department of
Energy's inspector general said in a report in December that staffing
shortages and other internal weaknesses all but guarantee that at least some
of the agency's $37 billion economic-stimulus funds will be misused. A
tenfold increase in funding for an obscure federal program that installs
insulation in homes has state attorneys general quietly admitting there is
little hope of keeping track of the money.

While I was in charge of investigations at the
Manhattan District Attorney's office, we brought case after case where
kickbacks, bid-rigging, false invoicing schemes and outright theft routinely
amounted to a tenth of the contract value. This was true in industries as
diverse as the maintenance of luxury co-ops and condos, interior
construction and renovation of office buildings, court construction
projects, dormitory construction projects, even the distribution of copy
paper. In one insurance fraud case, the schemers actually referred to
themselves as the "Ten Percenters."

Based on past experience, the cost of fraud
involving federal government stimulus outlays of more than $850 billion and
climbing could easily reach $100 billion. Who will prevent this? Probably no
one, particularly at the state and local level.

New York, for instance, has an aggressive inspector
general's office, with experienced and dedicated professionals. But, it is
already woefully understaffed—with a head count of only 62 people—to police
the state's already existing agencies and programs. There is simply no way
that office can effectively scrutinize the influx of $31 billion in state
stimulus money.

There is a solution however, which is to set aside
a small percentage of the money distributed to fund fraud prevention and
detection programs. This will ensure that states and municipalities can
protect projects from fraud without tapping already thinly stretched
resources.

Meaningful fraud prevention, detection and
investigation can be funded by setting aside no more than 2% of the stimulus
money received. For example, if a county is to receive $50 million for an
infrastructure project, $1 million should be set aside to fund antifraud
efforts; if it costs less, the remainder can be returned to the project's
budget.

While the most obvious option might be to simply
pump the fraud prevention funds into pre-existing law enforcement agencies,
that would be a mistake. Government agencies take too long to staff up and
rarely staff down.

A better idea is to tap the former government
prosecutors, regulators and detectives with experience in fraud
investigations now working in the private sector. If these resources can be
harnessed, effective watchdog programs can be put in place in a timely
manner. Competition between private-sector bidders will also lower the cost.

Some might object to providing a "windfall" to
private companies. Any such concern is misplaced. One should not look at the
2% spent, but rather the 8% potentially saved. Moreover, consider the
alternative: law enforcement agencies swamped trying to stem the tide of
corruption on a shoestring and a prayer.

There will always be individuals who will rip off
money meant for public projects. In the aftermath of the 9/11 attacks, and
Hurricane Katrina hundreds of people were prosecuted for trying to steal
relief funds. But the stimulus funding represents the kind of payday even
the most ambitious fraudster could never have imagined

To avoid a stimulus fraud Olympics that will be
impossible to clean up, it is better to spend a little now to save a lot
later. The savings could put honest people to work and fraudsters out of
business.

Mr. Castleman, a former chief assistant Manhattan district attorney,
is a managing director at FTI Consulting.

Tomorrow, my Fox Business Network show about Ayn
Rand's novel "Atlas Shrugged" will finally air. That should stop the emails
like this one from Karen Cooper:

"Oh for the love of god! 'Atlas Shrugged' explains
about 99 percent of what's wrong in all of the arenas of topics: health
care, education, climate change, unions, the economy, etc. PLEASE PLEASE
PLEASE cover 'Atlas.'"

Cooper makes a good point. Even though Rand
published "Atlas" in 1957, her descriptions of intrusive and bloated
government read like today's news. The "Preservation of Livelihood Law" and
"Equalization of Opportunity Law" could be Nancy Pelosi's or Harry Reid's
work.

The novel's chief villain is Wesley Mouch, a
bureaucrat who cripples the economy with endless regulations. This sounds
familiar. Reason magazine reports that "as he looks around Washington these
days," Rep. Paul Ryan "can't help but think he's seeing a lot of Wesley Mouch".

Personally, I think Chris Dodd's ridiculous
financial proposals ought to win him thehonor.
But he isn't among the choices on Fox's list. As I
write this, Geithner, President Obama and Barney Frank lead the voting.

My first guest on the show (FBN, 8 p.m. Eastern
Thursday, repeating at 10 p.m. Friday) is BB&T Chairman and "Atlas" fan John
Allison. Allison's bank, the ninth largest in America, is doing very well,
but he's angry the government forced him to take TARP money (http://tinyurl.com/lguje9).

Allison once told The New York Times, "To say man
is bad because he is selfish is to say it's bad because he's alive."

I'll pack the audience with some "Atlas" haters.
That shouldn't be hard. My daughter's boyfriend offers up his Yale
classmates. Many "liberals" agree with the "South Park" episode in which one
character said that "because of this piece of s--t, I am never reading
again." Rand brings out ferocious hatred in some people.

Also, I'll get a fish pedicure. Really.

This is a dubious Turkish idea that's become
popular in Asia and is now trying for a foothold (pun intended) here.
Instead of scraping dead skin off their feet, people have little garra rufa
fish gently chew on them.

Fourteen states have banned fish pedicures,
claiming they are unsafe, and other local governments have proposed bans.
OK, compared to the assault on entrepreneurship described in "Atlas
Shrugged," this is sort of a dumb example, but look -- I work in television
-- dumb examples can make good points.

The bureaucrats say the fish can't be sterilized
without killing them. They say customers will get infections. People could
die! It's not safe! And it's cruel to the fish!

Has anyone died? Can you refer me to someone who
got an infection? Anyone? The bureaucrats' answer is always no. But it's
better to be cautious, they say.

In fact, the free market sorts such things out far
more efficiently than bureaucrats. It's just not good business to hurt your
customers. My 30 years of consumer reporting taught me that businesses
rarely do this, and -- here's the market's self-regulation -- those that do
don't stay in business long. That's not a perfect system, but it's much
better than central planning. Had today's bureaucrats been in charge decades
ago, they would have banned things like aspirin, cars and airplanes.

Sadly, they are in charge now. That makes the
"Atlas" message important today.

Although Rand idolizes businessman in the abstract,
"Atlas Shrugged" makes clear that she (like Adam Smith) understood that they
are not natural friends of free markets. They are often first in line for
privileges bestowed by the state. That's called "crony capitalism," and
that's what Orren Boyle practices in "Atlas." After my "Atlas Shrugged"
show, I plan a show on that subject. Suggestions invited.

I don't want to be controlled by business any more
than I want to be regulated by Nancy Pelosi or Wesley Mouch.

I want the freedom to make my own choices.

Jensen Comment
Although John Stossel is one of my heroes, I find it a bit inconsistent that in
the above piece he rants against regulation when over the years as a strong
consumer advocate the "Give Us a Break" Stossel supported regulations that help
protect consumers against the exploitations of big business.

Six years ago I wrote a book called Uncle Sam's
Plantation. I wrote the book to tell my own story of what I saw living
inside the welfare state and my own transformation out of it.

I said in that book that indeed there are two
Americas -- a poor America on socialism and a wealthy America on capitalism.

I talked about government programs like Temporary
Assistance for Needy Families (TANF), Job Opportunities and Basic Skills
Training (JOBS), Emergency Assistance to Needy Families with Children (EANF),
Section 8 Housing, and Food Stamps.

A vast sea of perhaps well-intentioned government
programs, all initially set into motion in the 1960s, that were going to
lift the nation's poor out of poverty.

A benevolent Uncle Sam welcomed mostly poor black
Americans onto the government plantation. Those who accepted the invitation
switched mindsets from "How do I take care of myself?" to "What do I have to
do to stay on the plantation?"

Instead of solving economic problems, government
welfare socialism created monstrous moral and spiritual problems -- the kind
of problems that are inevitable when individuals turn responsibility for
their lives over to others.

The legacy of American socialism is our blighted
inner cities, dysfunctional inner city schools, and broken black families.

Through God's grace, I found my way out. It was
then that I understood what freedom meant and how great this country is.

I had the privilege of working on welfare reform in
1996, passed by a Republican Congress and signed 50 percent.

I thought we were on the road to moving socialism
out of our poor black communities and replacing it with wealth-producing
American capitalism.

But, incredibly, we are going in the opposite
direction.

Instead of poor America on socialism becoming more
like rich American on capitalism, rich America on capitalism is becoming
like poor America on socialism.

Uncle Sam has welcomed our banks onto the
plantation and they have said, "Thank you, Suh."

Now, instead of thinking about what creative things
need to be done to serve customers, they are thinking about what they have
to tell Massah in order to get their cash.

There is some kind of irony that this is all
happening under our first black president on the 200th anniversary of the
birthday of Abraham Lincoln.

Worse, socialism seems to be the element of our new
young president. And maybe even more troubling, our corporate executives
seem happy to move onto the plantation.

In an op-ed on the opinion page of the Washington
Post, Mr. Obama is clear that the goal of his trillion dollar spending plan
is much more than short term economic stimulus.

"This plan is more than a prescription for
short-term spending -- it's a strategy for America's long-term growth and
opportunity in areas such as renewable energy, healthcare, and education."

Perhaps more incredibly, Obama seems to think that
government taking over an economy is a new idea. Or that massive growth in
government can take place "with unprecedented transparency and
accountability."

Yes, sir, we heard it from Jimmy Carter when he
created the Department of Energy, the Synfuels Corporation, and the
Department of Education.

Or how about the Economic Opportunity Act of 1964
-- The War on Poverty -- which President Johnson said "...does not merely
expand old programs or improve what is already being done. It charts a new
course. It strikes at the causes, not just the consequences of poverty."

Trillions of dollars later, black poverty is the
same. But black families are not, with triple the incidence of single-parent
homes and out-of-wedlock births.

It's not complicated. Americans can accept Barack
Obama's invitation to move onto the plantation. Or they can choose personal
responsibility and freedom.

That question has led to many heated debates,
particularly in recent years, over charges from some on the right that
faculty members somehow discriminate against those who don't share a common
political agenda with the left. A new paper attempts to shift the debate in
a new direction. This study argues that certain characteristics of
professors -- related to education and religion, among other factors --
explain a significant portion of the liberalism of faculty members relative
to the American public at large.

Further, the paper argues
that academe, because of the impact of these factors, may now be
"politically typed" in a way that attracts more faculty members from the
left than the right.

The research was done by
Neil Gross, an associate professor of sociology at the University of British
Columbia, and Ethan Fosse, a doctoral candidate in sociology at Harvard
University. Gross has been the author of numerous
studies of professorial politics, including a 2007 analysis that
found faculty members, while liberal, may be more moderate than many
believe. The
new
study may be found on his Web site.

In this analysis, Fosse and
Gross do not dispute that faculty members are more liberal than the public
at large. Rather, they make two main arguments. First they look at a range
of characteristics that apply disproportionately to professors but are not
unique to professors, and examine the political leanings associated with
these characteristics -- finding that several of them explain a significant
portion of the political gap between faculty members and others. Then, they
offer what they call a new theory to explain why academe may attract more
liberals, regardless of whether they have those characteristics.

The paper finds that 43
percent of the political gap can be explained because professors are more
likely than others:

To have high levels of educational attainment.

To experience a disparity between their levels
of educational attainment and income.

To be either Jewish, non-religious, or a
member of a faith that is not theologically conservative Protestant.

To have a high tolerance for controversial
ideas.

The analysis is based on
data from the General Social Survey from 1974-2008. Beyond the items above,
a smaller but significant impact also was found because professors are more
likely than others to have lived in an urban area growing up and to have
fewer children.

On the question of the
education/income gap, Gross and Fosse say that their findings are consistent
with the work of Pierre Bourdieu. "For Bourdieu, intellectuals are defined
structurally by their possession of high levels of cultural capital and
moderate levels of economic capital," they write. "This structural position,
Bourdieu asserts, shapes their politics.... Deprived of economic success
relative to those in the world of commerce, intellectuals are less likely to
be invested in preserving the socioeconomic order, may turn toward
redistributionist policies in hopes of reducing perceived status
inconsistency, and may embrace unconventional social or political views in
order to distinguish themselves culturally from the business classes."

Political Types

After outlining their
statistical case, the authors go on to suggest what they call a new theory
to explain professorial politics that builds on the differences they
identify in the first part of their paper. They note that the factors they
focus on in the first part of their study explain a portion but only a
portion of the political gap, suggesting that relying on class analysis
alone would be inadequate.

"The theory we advance ...
holds that the liberalism of professors is a function not primarily of class
relations, but rather of the systematic sorting of young adults who are
already liberally or conservatively inclined into and out of the academic
professions," they write.

Gross and Fosse cite
research by others about how some professions become "sex typed" such that
they are associated with gender. Even if some men and women defy these
patterns and there is nothing inherently gender-related to these patterns,
these types have an impact on the aspirations of young men and women.

"We argue that the
professoriate, along with a number of other knowledge work fields, has been
'politically typed' as appropriate and welcoming of people with broadly
liberal sensibilities, and as inappropriate for conservatives," they write.
"This reputation leads many more liberal than conservative students to
aspire for the advanced educational credentials that make entry into
knowledge work fields possible, and to put in the work necessary to
translate those aspirations into reality."

The authors are careful to
define limits to their theory. They state that they do not believe that
young people place themselves into numerous socioeconomic and philosophical
views to determine a choice of career. And they note that they doubt that
most young people even understand their full range of options. Rather, they
argue that for those with political sensibilities, "identity and the social
psychology of identity" come into play.

"[W]e argue that for young
people whose political identities are salient, liberalism and conservatism
constrain horizons of educational and occupational possibility," they write.
"Because these identities involve cognitive schemas and habitual patterns of
thinking that filter experience ... most young adults who are committed
liberals would never end up entertaining the idea that they might become
police or correctional officers, just as it would never cross the minds of
most who are committed conservatives that they might become professors,
precisely because of the political reputations of these fields."

The theory might also, the
authors write, explain political differences visible among different
academic disciplines.

"[W]e theorize that,
within the general constraint that more liberals than conservatives will
aspire for advanced educational credentials and academic careers of any
kind, liberal students will be far more inclined than conservatives to enter
fields that have come to define themselves around left-valenced images of
intellectual personhood," the paper says. "Over the course of its 20th
century history, for example, sociology has increasingly defined itself as
the study of race, class, and gender inequality -- a set of concerns
especially important to liberals -- and this means that sociology will
consistently recruit from a more liberal applicant pool than fields like
mechanical engineering, and prove a more chilly home for those conservatives
who manage to push through into graduate school or the academic ranks."

It is no secret that professors at
American colleges and universities are much more liberal on average than the
American people as a whole. A recent paper by two sociology professors
contains a useful history of scholarship on the issue and, more important,
reports the results of the most careful survey yet conducted of the ideology
of American academics. See Neal Gross and Solon Simmons, “The Social and
Political Views of American Professors,” Sept. 24, 2007, available at
http://www.wjh.harvard.edu/~ngross/lounsbery_9-25.pdf (visited Dec. 29.
2007); and for a useful summary, with comments, including some by Larry
Summers, see “The Liberal (and Moderating) Professoriate,” Inside Higher Ed,
Oct. 8, 2007, available at www.insidehighered.com/news/2007/10/08/politics
(visited Dec. 29. 2007).) More than 1,400 full-time professors at a wide
variety of institutions of higher education, including community colleges,
responded to the survey, representing a 51 percent response rate; and
analysis of non-responders indicates that the responders were not a biased
sample of the professors surveyed.

In the sample as a whole, 44 percent of
professors are liberal, 46 percent moderate or centrist, and only 9 percent
conservative. (These are self-descriptions.) The corresponding figures for
the American population as a whole, according to public opinion polls, are
18 percent, 49 percent, and 33 percent, suggesting that professors are on
average more than twice as liberal, and only half as conservative, as the
average American. There are interesting differences within the professoriat,
however. The most liberal disciplines are the humanities and the social
sciences; only 6 percent of the social-science professors and 15 percent of
the humanities professors in the survey voted for Bush in 2004. In contrast,
business, medicine and other health sciences, and engineering are much less
liberal, and the natural sciences somewhat less so, but they are still more
liberal than the nation as a whole; only 32 percent of the business
professors voted for Bush--though 52 percent of the health-sciences
professors did. In the entire sample, 78 percent voted for Kerry and only 20
percent for Bush.

. . .

My last point is what might be called the
institutionalization of liberal skew by virtue of affirmative action in
college admissions. Affirmative action brings in its train political
correctness, sensitivity training, multiculturalism, and other attitudes or
practices that make a college an uncongenial environment for many
conservatives.

The study by Gross and Simmons
discussed by Posner in part confirms what has been found in earlier studies
about the greater liberalism of American professors than of the American
population as a whole. Their study goes further than previous ones by having
an apparently representative sample of professors in all types of colleges
and universities, and by giving nuanced and detailed information about
attitudes and voting of professors by field of expertise, age, gender, type
of college or university, and other useful characteristics. I will try to
add to Posner's valuable discussion by concentrating on the effects on
academic political attitudes of events in the world, and of their fields of
specialization. I also consider whether college teachers have long-lasting
influences on the views of their students.

. . .

Given the indisputable evidence that
professors are liberal, how much influence does that have on the long run
attitudes of college students? This is especially relevant since some of the
most liberal academic disciplines, like the social sciences and English,
have close contact with younger undergraduates. The evidence strongly
indicates that whatever the short-term effects of college teachers on the
opinions of their students, the long run influence appears to be modest. For
example, college graduates, like the rest of the voting population, split
their voting evenly between Bush and Kerry. The influence of high incomes
(college graduates earn on average much more than others), the more
conservative family backgrounds of the typical college student (but less
conservative for students at elite colleges), and other life experiences far
dominate the mainly forgotten influence of their college teachers.

This evidence does not mean that the
liberal bias of professors is of no concern, but rather that professors are
much less important in influencing opinions than they like to believe, or
then is apparently believed by the many critics on the right of the
liberality of professors.